The inevitable conclusion of low rates

Rob Shelley
· 16 September, 2016

As August came to its close, the world's seventh largest - and South Korea's biggest - container shipping line, Hanjin Shipping, filed for court receivership, consumed by mounting debt schedules with creditors and increasing industry overcapacity.

Hanjin had suffered annual net losses from 2011-2014 - with total debt in June reaching a staggering $5.5billion. While there may be hope on the horizon, (Hyundai Merchant Marine are in talks to acquire Hanjin's vessels and staff), for the time being, ports in China and the US have denied entry to Hanjin ships and goods cannot be unloaded. Discussions between banks and Hanjin are yet to proffer a solution.

It is another manifestation of the ongoing distillation process resulting from the capacity-saturated market. Further evidence can be seen in French company CMA CGM which took over Singapore's Neptune Orient Lines earlier this year while in June, German company Hapag-Lloyd merged with United Arab Shipping Company.

With the volume of goods shipped being fairly constant, the good news for shippers is that costs haves fallen. According to maritime researchers Drewry, container ship capacity is growing at 3.2% a year, while demand for container cargo is a lukewarm 1.8%. This miscalculated provision was fuelled by an inaccurate forecast in the early part of 2000 by ship builders who predicted trade would continue to grow at 6% - 8%, as with the previous two decades.

While it is good news for shippers that the cost of shipping is plummeting (and therefore Hanjin's demise should not be seen as a harbinger for global trade woe), the shipping lines will continue to experience profit fears until the race for building mega ships subsides.

Shopping around pays dividends for those with high shipping costs. By working with an experienced freight forwarder, you can leverage the economies of scale which are available to those who know where to look.